With many self-storage owners looking to development new facilities, it is important they choose a place to build their facility in a place where it will thrive: a high-growth area where people are moving with high barriers to entry and limited competition.
The “if you build it, they will come” mentality just doesn’t cut it anymore for self storage, so defining your trade area before starting development is more important than ever.
But what exactly is a market area and how do you identify yours?
Five mile limit
Typically, the self-storage market has been defined by a one-, three- and five-mile radius around your facility, said Brad Sherman, managing principal at StoreSmart Self Storage, which has offices in Carbondale, CO, and Boca Raton, FL.
“Absent some compelling circumstance, a storage customer will not travel more than five miles to store their stuff,” Sherman said. So we start with that assumption and then dial it back to see where everything lays out,” Sherman said.
Sherman said based on the five-mile assumption, they examine several factors within that range including competition, traffic patterns, population and where people live and work.
Find your base
“In the analysis I do, and the underwriting that we do for our acquisitions or development sites, we look at market area based on what we anticipate the customer base is generated from,” said Robert Cerrone, divisional vice president of operations at Austin, TX-based Great Value Storage.
“That means that market area or trade area can differ dramatically depending on the density of the market,” Cerrone said.
For example, because suburban or more tertiary markets are more spread out, self-storage professionals typically concentrate on the three- and five-mile radius when evaluating demand. Urban properties have smaller trade areas.
“The closer you are to the central business district, the smaller the radius then becomes,” Cerrone said.
Such is the case for a deal Great Value is working on in New York just outside of Queens: “We’re analyzing specifically the one -and two-mile range, because the density is so high; the population is approximately 330,000 people in a one-mile range.”
However, Cerrone said when dealing with suburbs in large metropolitan areas like Dallas or Houston, for example, most customers are coming from within the three-mile radius.
Industry experts agree that determining your trade area is not as easy as drawing a three- or five-mile circle around your facility on a map.
“Sometimes the geographical layout of the market is such that we have to do some sort of asymmetrical radius where there might be a river right near the property and there are impediments to people traveling across the bridge to store their stuff,” Sherman said.
Cerrone agreed. “When we look at trade areas, we also look at geographical barriers that keep people in certain pockets,” he said. “If there’s a major interstate or river or something that keeps people on one side or the other, you have to adapt your trade area to that as well.”
Do your homework
Experts suggest finding out who lives and works in your trade area by conducting a demographic study using census information for the one, three- and five-mile radius. This information should include current population, anticipated growth, housing mix (renter/owner, multi-family/single-family) and average household income.
Much of this data can be found at the local planning department, assessor’s office, city or county government websites, or by visiting the U.S. Census Bureau’s American Fact Finder.
You can also hire an industry professional to conduct a feasibility study.
Convenience is king
It’s important to remember that four basic data points establish a person’s convenience market when seeking self-storage, said industry consultant Jim Chiswell, president of Winchester, Va.-based Chiswell & Associates LLC.
“They’re where someone lives, works, shops and where their kids go to school. For example, I’ve never seen a facility near a Wal-Mart suffering. The majority of residents within the target market area shop at Wal-Mart several times a month and each time they drive by the facility.”
However, Chiswell has seen storage owners get into trouble when they assumed the target market area was “beyond the normal limits, and too late they realized that customers that they thought they would attract were not willing to go ‘over there’ to store their belongings.”
Check the competition
Both existing and planned competitors should be plotted on a map to find the total square footage of self-storage facilities within your trade area. Also, visit competing facilities to determine the unit mix, rental rates and occupancy levels, which will help you evaluate market saturation and calculate income potential.
“We want to know not only where every competitor is located, but what their unit mix is, what their rates look like, and how much climate vs. non-climate they have,” Sherman said.
Plus, he will go to the city’s planning and zoning to see if any new facilities are planned or going through the approval process.
“If we determined there’s only 200,000 square feet of demand in the five-mile ring and find out that somebody is building a 100,000-square-foot facility, well that’s sort of sucked up all the remaining demand in the market,” Sherman said.
Playing it safe
One thing that StoreSmart does that differs from some other operators is—as a result of the recession—the company no longer includes future housing development as part of its market analysis to determine trade area and demand.
“If we go into a market, it’s because demand exists at it sits today,” Sherman said. “We don’t consider anything that may or may not be built in the future. What we found was future development often doesn’t follow through.”